IAS 19 paras 61, 103, past service credit to income arising from reversal of constructive obligation

Bombardier Inc. – Annual report – 31 December 2016

Industry: manufacturing

MANAGEMENT’S DISCUSSION AND ANALYSIS (extract)

RETIREMENT BENEFITS (extract)

Retirement benefit cost

Bombardier had a constructive obligation for discretionary ad hoc indexation increases to certain pension plans. Following a communication to plan members that we do not expect to grant such increases in the foreseeable future in line with our current practice, the constructive obligation amounting to $139 million was reversed, and recorded as a special item. Mainly as a result of this reversal, the retirement benefit cost decreased in 2016 to $171 million.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (extract)

For the fiscal years ended December 31, 2016 and 2015

(Tabular figures are in millions of U.S. dollars, unless otherwise indicated)

8. SPECIAL ITEMS (extract)

Special items were as follows, for fiscal years:

1. Represents provision for onerous contracts in conjunction with the closing of C Series aircraft firm orders in the second quarter of 2016.

2. For fiscal year 2016, represents severance charges of $227 million, partially offset by curtailment gains of $22 million, and impairment charges of PP&E of $10 million related to the restructuring actions announced in February 2016 and October 2016. For fiscal year 2015, represents restructuring charges of $13 million related to the workforce reduction announced in January 2015 of approximately 1,000 positions, as a result of the decision to pause the Learjet 85 aircraft program, and a reversal of restructuring provisions taken in prior year of $4 million.

3. The Corporation had a constructive obligation for discretionary ad hoc indexation increases to certain pension plans. Following a communication to plan members that the Corporation does not expect to grant such increases in the foreseeable future in line with the Corporation’s current practice, the constructive obligation amounting to $139 million was reversed.

4. For fiscal year 2016, represents the loss related to the redemption of the $650-million and $750-million Senior Notes due 2018. For fiscal year 2015, represents the loss related to the redemption of the $750-million Senior Notes due 2016.

5. For fiscal year 2015, represents an impairment charge of $919 million on aerospace program tooling, and inventory write-downs, write-downs of other assets, PP&E and other intangible assets, other provisions and other financial liabilities of $244 million, as a result of the cancellation of the Learjet 85 aircraft program due to the lack of sales following the prolonged market weakness. See Note 17 – Inventories, Note 21 – Intangible assets and Note 24 – Provisions. Based on the ongoing activities with respect to the cancellation of the Learjet 85 aircraft program, the Corporation reduced the related provisions by $59 million for fiscal year 2016. The reduction in provisions is treated as a special item since the original provisions were also recorded as special charges in 2014 and 2015.

6. Represents a change in the estimates used to determine the provision related to tax litigation.

7. Represents foreign exchange gains related to the reorganization of Transportation under one holding entity necessary to facilitate the investment in a minority stake in Transportation.

8. Represents transaction costs attributable to the conversion option embedded in the CDPQ investment in BT Holdco. See Note 10 – Non-controlling interest for more details.

9. For fiscal year 2015, represents an impairment charge of $3,070 million on aerospace program tooling, and inventory write-downs and other provisions of $165 million, following the completion of an in-depth review of the C Series aircraft program as well as discussions with the Government of Québec which resulted in the October 2015 memorandum of understanding. See Note 17 – Inventories, Note 21 – Intangible assets and Note 24 – Provisions.

10. For fiscal year 2015, related to an increase in provisions for credit guarantees and RVGs as a result of changes in assumptions concerning residual value curves of regional aircraft due to difficult market conditions for regional pre-owned aircraft and a higher probability that the guaranteed party will exercise the RVG given the recent experience with respect to RVG and a loss on certain financial instruments due to changes in estimated fair value.

11. For fiscal year 2015, represents an impairment charge of $243 million on the remaining CRJ1000 aircraft program development costs. The impairment was due to the lack of recent order intake as well as low firm order backlog for the CRJ1000 aircraft, mainly stemming from pilot scope clauses in the U.S., which have restricted the use, number and seating capacity of regional aircraft flying on behalf of network carriers. Over the near term, we do not anticipate scope clause relaxation in the U.S., during which time, we will not be able to sell the CRJ1000 aircraft in the U.S. market. See Note 21 – Intangible assets.

12. For fiscal year 2015, mainly related to restructuring of customer commercial agreements.

13. For fiscal year 2015, costs incurred in connection with the termination of third-party sales representative and distribution agreements to increase the number of direct-to-market channels.

14. For fiscal year 2015, represents an impairment charge of $53 million on the remaining Learjet family aerospace program tooling following the prolonged market weakness in the light business aircraft category. See Note 21 – Intangible assets.

15. For fiscal year 2015, represents net write-downs of deferred income tax assets, mainly due to the reorganization and consolidation of Transportation under one holding entity necessary to facilitate the planned investment in a minority stake in Transportation.